Farmers' Loan Trust Company v. Newman/Opinion of the Court

From this history of the proceedings in the court below it satisfactorily appears: (1) That Newman, as trustee, had a lien upon the road south of Lexington-the same leased by the Lexington, Lake & Gulf Railway Company to the Burlington & Southwestern Railway Company for the benefit of the Linneus branch of the latter corporation-prior and paramount to that created by the mortgage for $1,600,000. (2) That after the court passed the decree of foreclosure of May 19, 1876, the parties deemed it important to their interests that the road south of Lexington be completed for traffic before any sale took place under that decree, and to that end the receiver, with their knowledge and consent, obtained leave to borrow money upon certificates, which should be a lien, prior to all others, upon that portion of the Burlington & Southwestern Railway acquie d for its Linneus branch under the contract of lease with the Lexington, Lake & Gulf Railroad Company of February, 1872, but upon no other property or funds in the possession of the receiver. (3) That, by the same order, the receiver was directed to settle and adjust, by payment or otherwise, any outstanding claims against the lessor company which might seem to be prior in right to the claims of the lessee company under said contract of lease, and to purchase in any outstanding or adverse lien or title to any portion or all of the property, upon such terms as he deemed best for the interests of the parties concerned, 'any rights or title so acquired to be conveyed to him as receiver, for the benefit of the parties in interest herein:' the parties here referred to being the holders of bonds under the mortgage for $1,600,000 and the trustees in that mortgage. (4) That, under the authority of this order, the receiver made, with Newman, as trustee, the agreement of March 12, 1880, whereby the latter agreed to convey to the former, as receiver, all his right, title, and interest in the leased premises, including any rights acquired under Chapman's sale in virtue of the trust deed of January 16, 1872, and whereby, also, the receiver agreed to pay to Newman the sum of $17,750 within nine months from December 18, 1879, such payment to be made 'out of any money coming into his hands from that part of said railroad hereinbefore mentioned, or from the sale of receiver's certificates [then] lately authorized by said court to be issued by said receiver, or from earnings from that portion of said road, or arising from the sale thereof under the decree of said court;' such agreement 'not to bind the receiver in reference to any other property or money coming into his hands except from or pertaining to that part of the property aforesaid acquired from the Lexington, Lake & Gulf Railroad Company.' It is not disputed that the order authorizing the receiver to acquire by purchase for the benefit of the parties interested in foreclosure suit, any adverse lien upon the property decreed to be sold, was one that the court had power to make; nor is it claimed that the agreement made with Newman was beyond the authority conferred upon the receiver by its order. And it is clear that the agreement gave Newman the right to be paid out of any proceeds arising from the sale of that part of the Linneus branch covered by the deed of trust to Chapman and by the quitclaim to the receiver. But, manifestly, this agreement, fairly interpreted, imposed upon the receiver and the parties interested in the foreclosure suit the duty of obtaining from the court (as might readily have been done) such modification of the decree of sale, passed in 1876, as would enable the court and the parties to know how much was realized from a sale of that part of the road upon which Newman's prior lien rested. That result could have been reached only by selling that part separately, or by selling the mortgage property subject to that lien. Instead of having the sale made in one or the other of the forms suggested, Smith, as agent for the mortgage trustees and bondholders-having induced Newman to surrender his claim and title-bid in the property as an entirety, including the leased premises upon which Newman had a paramount lien, for $1,000,000, payable in mortgage bonds. It is now said that there are no proceeds or moneys arising from the leased premises which can be awarded to Newman under his agreement with the receiver. In conformity with that agreement he deposited with Mr. Noble, not only his quitclaim deed to the receiver, but the Chapman trust deed and the note secured by it; and yet, according to the contention of the appellants, his only remedy is a separate, independent suit, asserting his prior lien upon the part of the road covered by the Chapman deed of trust. This result has come from the failure of Smith, as agent for the mortgage trustees and bondholders, to carry out in good faith the agreement which he, as receiver, made with Newma, under the authority of the court, for the benefit of the same parties. We are of opinion that the sale of the mortgaged property, as an entirety, without having obtained such modification of the decree of 1876 as would meet the requirements of the agreement with Newman, should, under the circumstances, be deemed an election upon the part of the appellants, and those whom they represent, not to have the mortgaged property sold in parts, or subject to Newman's prior lien, and, consequently, not to restrict his lien to that portion of the road embraced by the Chapman deed; and therefore he was entitled to be first paid out of the aggregate proceeds of the sale of the entire line covered by the $1,600,000 mortgage. His right thus to be paid is not to be defeated by the fact that the mortgage bondholders exercised the privilege given by the decree of sale to make payment, not in cash, but in mortgage bonds. If they do not discharge, in money, Newman's prior lien within a reasonable time fixed for that purpose, the property, covered by that mortgage, including the leased premises, should be again sold as an entirety, or so much thereof sold as may be necessary, to raise the amount, principal and interest, due him, together with his costs in the court below, from the time he filed the petition of intervention. It may be that the same result practically would be accomplished for Newman by executing the decree from which the present appeal is prosecuted. But we are of opinion that the court below erred in setting aside-even if it had the power to do so-the confirmation of the sale by the special master, and the order approving the deed made to the purchaser. The sale was confirmed, the deed to the purchaser approved, and the latter authorized to take possession, by the order of July 5, 1881. The reservations in that order did not authorize the court to set aside the confirmation of the sale and cancel the deed to the purchaser. The confirmation of the sale and the approval of the deed were, rather, subject to the power reserved, to protect and enforce, by subsequent orders, any claim or lien then pending either in that court, or, by its leave, in a state court. So far as Newman is concerned, such protection can be given, and should be given only, by an order directing the entire property, covered by the $1,600,000 mortgage, to be sold, in satisfaction of his claim or lien, without annulling the former sale or the confirmation thereof, and without withdrawing or canceling the deed made by the master to the purchaser. To the extent indicated the decree is reversed, and the cause is remanded for further proceedings consistent with this opinion.